Fuel costs lead to yet another fare jump
Continental Airlines and most other major carriers matched fare increases of as much as 5 percent round trip Friday, following the lead of United Airlines.
The move comes as domestic carriers are looking for new revenue to combat escalating fuel costs.
Those costs this month helped propel Delta and Northwest airlines to announce a merger and have spurred talk of broader consolidation in the industry. But it remained unclear Friday how Houston-based Continental might participate.
The airline is still considering its “strategic options” in regard to mergers, Continental Chief Executive Larry Kellner told employees Friday in his weekly recorded message. He said he wanted to address rumors that have been swirling.
Continental has had talks with both United and American Airlines.
Once again, Kellner cited record fuel costs as the force behind his industry’s woes.
“Oil prices continue to hit levels that would have been unthinkable last year,” he said, adding that the surge is bad news for the nation’s economy in general and the airline industry in particular.
Those prices were in part behind the latest fare increase, which saw Continental match the jump of 2 percent to 5 percent “across the bulk of its route system,” Rick Seaney of FareCompare.com said.
Those increases ranged from $6 to $80 round trip, depending on the route, he said.
For example, one Continental flight from Houston to Newark will increase from $1,238 to $1,274 round trip, according to FareCompare. But that is for a last-minute ticket.
US Airways matched the hike across a third of its routes, ranging from 2 percent to 4 percent as of Friday afternoon, Seaney said in a report.
American Airlines, which enacted the increase late Thursday, continued to “firm up” by matching it in markets it left out last night, he said. Frontier Airlines partially matched on some of its routes.
The fare expert expects Northwest Airlines to match this weekend.
This is the 13th attempted increase of 2008, according to Seaney. Eight have been widely successful.
Rising fuel prices have for months been hammering carriers, and all six major network airlines reported steep losses in the first quarter as a result. Continental fared better but still reported an $80 million loss.
High oil prices also have put more wind in the sails of airline merger proponents, who see consolidation as one way of fighting fuel costs, which recently surpassed labor cost as carriers’ top expenditure.
John Scholle, an economist with Global Insight in Washington, D.C., said in looking at the prospect of mergers, the biggest gain will be in the ability to cut costs and perhaps control capacity better.
“The reason why airlines have been able to increase fares as jet fuel prices increased is because the demand was there to accept the price increases,” Scholle said. “If demand drops off, you worry that increased prices are just going to drive people away. And that option to raise fares to compensate for higher jet fuel costs diminishes.”
JP Morgan analyst Jamie Baker noted in a report that the once-held view that consolidation alone was sufficient to address high oil prices “appears to have been put to rest.”
Speculation was rampant Friday about a variety of possible carrier combinations. In addition to Continental, US Airways has been linked to United and American.
Source: chron.com
Tags: airlines, Delta, fuel costs, oil price